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When the Army picked Serco Inc. for human resources work, the government contractor launched a new line of business and began providing transition and job assistance services to soldiers, civilian employees and their family members.

Since that day 16 years ago, the company, then known as Resource Consultants Inc., has continued to ride an accelerating trend of government agencies turning to contractors for work that goes beyond the realm of usual IT services.

"That was our real beginning, to get into the human resources business, especially with the Army," said Earl Simms, Serco's vice president of Army strategy. Retiring as a brigadier general after a 32-year career, Simms used the Army Career and Alumni Program services himself.

Helping the Army to render such HR services also helped the company. It broadened its offerings from engineering, IT and professional services to fleet management, transportation and aviation and logistics support services to government, military and commercial customers.

The Vienna, Va., company still offers IT consulting services, which brought in $185 million in 2005, and put it at No. 52 on Washington Technology's 2006 Top 100 list of the largest federal IT contractors. But about 23 percent of its sales also come from its HR business: about $119 million of its 2005 revenue of $514 million, Simms said.

Other companies also have been pursuing such work, widely tagged as business process outsourcing or management services. Over the past few years, new objectives have been pushing companies to develop or expand this line of work.

Government workers who are retiring and college graduates who balk at the idea of spending their entire career in one federal agency are helping to drive demand for such services. The global war on terror and the constant need to find civilian workers to replace deployed soldiers also fuel this type of outsourcing, industry executives said.

Signs of a trend

The government's own desire to find more efficient, cost-effective ways of doing business also is driving the trend, they said.

"The government really wants to provide services that are as easy as using Amazon.com," said Mary Westbrook, senior vice president and general manager of the civilian agency services division at Pearson Government Solutions Inc. The Arlington, Va., company furnishes customer-service centers and staff for the Education Department's Federal Student Aid Office. Pearson employees answer questions about student aid via telephone, mail and the Web.

Today, business process outsourcing services account for between $10 billion and $20 billion in government spending, according to government IT research firm FedSources Inc. A more precise breakdown is difficult, because there are many ways that government and contractors define business process outsourcing services.

A recent report by consulting firm Government Futures Inc. said that U.S. government spending on IT infrastructure and applications support, the usual market for IT contractors, will decrease between 10 percent and 25 percent by 2010.

The company's survey of more than 130 government and industry officials indicated that as this spending falls, departments' and agencies' will put more money into mission support services. Funding for human resources, financial management and logistics will see growth in the double digits.

That government IT contractors are cultivating more business process outsourcing work also is proof of the trend. Since the late 1990s, Perot Systems Corp. has run an interactive women's heath Web site for the Health and Human Services Department's Office on Women's Health. The company also staffs it to answer health care questions via a toll-free number.

In September, Perot Systems won a five-year, $16.1 million contract to continue supplying communications outreach support for the women's health Web site as well as a girls' health Web site. The company hosts the two Web sites and a call center at its Fairfax, Va., office. It also has published a women's health daybook, containing a calendar and reference guide, as part of its work. The company ranks No. 44 on Washington Technology's 2006 Top 100 list.

Some tier-one government IT contractors also are gearing up to get into business process outsourcing. At the end of September, Lockheed Martin Corp. acquired Pacific Architects and Engineers Inc., a California company that provides support services for the military as well as for peacekeeping missions, nation-building activities, personnel recruitment and training and disaster relief.

PAE's largest business segment is facilities and operations maintenance and base operations support for the Defense and State departments, and the defense ministries in Canada and New Zealand.

Other foreign governments are buying business process outsourcing services from typical IT companies. TechTeam Europe, a unit of IT company TechTeam Global Inc. of Southfield, Mich., furnishes multilingual staffers to answer call center and Web site inquiries for the Europe Direct service it runs for the European Commission. About 35 staff members take questions about the European Union and its policies.

The company is confident it will win a new five-year contract to continue the service when it goes to bid in 2008, said Tonny Van Dingenen, senior team leader for TechTeam Europe. Meanwhile, it is expanding to cover more policy areas, and in January, it will offer information about EU's new seven-year program for research funding.

Old idea, new thinking

The idea of offering business process outsourcing and administrative services to the government is not new. The push for departments and agencies to develop enterprise architectures has increased such activity.

"What has facilitated this trend ? and maybe crystallized it in the view of the government ? is good, old enterprise architecture, which has pretty clearly identified the kinds of business functions and services that the government provides, and has compelled the agencies to map their everyday groups of functions," said Ray Bjorklund, senior vice president and chief knowledge officer of FedSources.

Many people who are focused on enterprise architecture "are also technologists, and have been thinking about some more advanced concepts such as service-oriented architecture," Bjorklund said. "They're realizing that there may be an IT component to the delivery of these routine services."

As a result, the business process outsourcing services that government IT companies feature have IT components or intersect with their other technology offerings.

"From the HR perspective, [IT services] are a major complement to our ability to provide efficient services," Serco's Simms said. IT is one tool that helps Serco come up with innovative ways to satisfy a particular customer requirement, he said.

As part of its professional services contract work with the Education Department's Federal Student Aid Office, Pearson Government Solutions also implemented the IT systems for the agency's customer service centers. Pearson used customer relationship management software on desktops, and linked multiple call centers in a virtual environment to manage the centers as a single, integrated operation. The system lets the centers handle a large volume of calls.

Pearson also created an image-based correspondence processing system for mail inquiries to reduce paper handling and improve document tracking, archival and retrieval.

"We've always thought about operating the systems that we design and build as going hand in hand with the professional services," Pearson's Westbrook said.

In the experience of Michelle Lee, founder, president and CEO of STG International Inc., IT cannot be separated from a normal contract implementation for a business process outsourcing service.

With HR projects or human capital initiatives for the government, the experts STG provides must be familiar with each federal agency's recruitment hardware and software to get them up and running, she said.

The Alexandria, Va., company offers HR, medical support and professional administrative services to the government. STG's clients include the Commerce, Health and Human Services and Homeland Security departments and the Navy.

Of the company's anticipated $70 million-plus revenue for 2006, Lee expects about 55 percent to come from the health care and medical services practice, about 25 percent from human capital management services and about 20 percent from professional and administrative services and the management consulting and IT division. It is No. 13 on Washington Technology's 2006 Fast 50 list of small federal IT contractors.

For Serco, business process outsourcing accounts for about 24 percent, or $128 million, of its annual revenue, Simms said.

In addition to helping the Army with recruiting and assisting soldiers with transitioning to civilian life, Serco also is working on the Army's Wounded Warrior Program, which gives advocacy and support services to severely injured soldiers and their families.

Serco also provides HR services to the Air National Guard under a two-year, $6.5 million contract. Work is under way at 70 locations in the United States and its territories.

Serco has focused on the Army, but the company sees a similar need from the Navy, Air Force and Coast Guard, Simms said. "They are all looking at trying to achieve the same thing."

Staff Writer Roseanne Gerin can be reached at rgerin@postnewsweektech.com.

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